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    Cost Curves Student

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    maitreyee
    The document discusses the shapes of various cost curves in the short run: 1) Total variable cost (TVC) and marginal cost (MC) curves initially decrease then increase, as TVC rises at a decreasing rate until diminishing returns set in, then at an increasing rate, and MC is the slope of the TVC curve. 2) Total cost (TC), total fixed cost (TFC), and TVC can be drawn together, with TFC parallel to the quantity axis and TC above TVC by the amount of TFC. 3) Average total cost (ATC), average fixed cost (AFC), and average variable cost (AVC) are U-shaped, with ATC above A

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    Cost Curves Student

    Uploaded by

    maitreyee
    14 views3 pages
    The document discusses the shapes of various cost curves in the short run: 1) Total variable cost (TVC) and marginal cost (MC) curves initially decrease then increase, as TVC rises at a decreasing rate until diminishing returns set in, then at an increasing rate, and MC is the slope of the TVC curve. 2) Total cost (TC), total fixed cost (TFC), and TVC can be drawn together, with TFC parallel to the quantity axis and TC above TVC by the amount of TFC. 3) Average total cost (ATC), average fixed cost (AFC), and average variable cost (AVC) are U-shaped, with ATC above A

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    Cost Curves Student

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    The document discusses the shapes of various cost curves in the short run: 1) Total variable cost (TVC) and marginal cost (MC) curves initially decrease then increase, as TVC rises at a decreasing rate until diminishing returns set in, then at an increasing rate, and MC is the slope of the TVC curve. 2) Total cost (TC), total fixed cost (TFC), and TVC can be drawn together, with TFC parallel to the quantity axis and TC above TVC by the amount of TFC. 3) Average total cost (ATC), average fixed cost (AFC), and average variable cost (AVC) are U-shaped, with ATC above A

    Copyright:

    © All Rights Reserved
    Download as DOC, PDF, TXT or read online from Scribd
    Download as doc, pdf, or txt
    14 views3 pages

    Cost Curves Student

    Uploaded by

    maitreyee
    The document discusses the shapes of various cost curves in the short run: 1) Total variable cost (TVC) and marginal cost (MC) curves initially decrease then increase, as TVC rises at a decreasing rate until diminishing returns set in, then at an increasing rate, and MC is the slope of the TVC curve. 2) Total cost (TC), total fixed cost (TFC), and TVC can be drawn together, with TFC parallel to the quantity axis and TC above TVC by the amount of TFC. 3) Average total cost (ATC), average fixed cost (AFC), and average variable cost (AVC) are U-shaped, with ATC above A

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    © All Rights Reserved
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    Download as doc, pdf, or txt
    of 3

    DP1 Econ. Supplementary Notes Cost curves P.

    The shape of various cost curves in the SR:


    A. Total variable cost (TVC) and marginal cost (MC) curves:
    The shape of cost curves in the SR is a reflection of the law of
    _______________________ ______________________________. Output (TP) in the SR
    initially rises at an _____________________ rate up until that unit of labour at which
    _________________________________ set in.
    Thus, as more is produced, TVC rises initially at a _______________________ rate until
    the unit of output at which _________________________________ set in production.
    Beyond that unit, TVC rises at an ______________________________ rate.
    MC is the slope of TVC. So since TVC rise at a decreasing rate initially and at an
    increasing rate after the diminishing marginal returns set in, MC initially will decrease and
    then start to increase. (Again, when will MC start to increase?)
    Now, draw the TVC curve in the upper diagram and then the MC curve in lower diagram:

    Fig.1 TVC and MC curves

    DP1 Econ. Supplementary Notes Cost curves P.2

    B. TC, TFC and TVC in one diagram


    TFC are costs that do not vary when the output level varies. They exist even there is no
    output at all. (Can you name some example?) Thus, TFC is a parallel line to the quantity
    axis.
    The shape of TC and TVC curves are the same, except the former curve has been shifted
    up by the amount of the _______. Thus, the _________________ distance between the
    TC and the TVC is the same.
    When you draw these curves, draw the TVC and TFC first, and lastly TC.

    Fig.2 TC, TFC, TVC

    C. ATC, AFC, AVC


    Since AFC = ______ _______, the AFC curve continuously decreases as output rises,
    but never drop to zero.

    Fig.3 AFC

    DP1 Econ. Supplementary Notes Cost curves P.3

    Since ATC = ______ + ________. Thus, ATC lies _________ the AVC, and the vertical
    distance between the two curves becomes _____________ and _____________ as the
    output increases. (Do you know why?)
    Both the ATC and AVC curves are _____________ curve because of the law of
    ________________________________________ and the behavior and shape of the AP
    curve. The AVC curve is the mirror image of the AP curve.
    When you draw the ATC and AVC on the same diagram, first draw the ATC. Note the
    ATC minimum. Then draw the AVC below the ATC. Make sure that the AVC minimum is
    to the left of the ATC minimum.
    AVC is the slope of a line that is
    drawn from the origin to a point
    on the TVC. The slopes of theses
    lines are decreasing initially and
    increasing after the diminishing
    average returns set in, AVC
    initially will decrease and then
    start to increase.
    Remember the two curves get closer and
    closer (but do not touch) as you draw the
    curves to the right.

    Fig.4 ATC and AVC

    D. How to draw ATC, AVC and MC curves in the same diagram


    `
    ATC and AVC curves are U-shaped and MC curve is like a Nike logo. Remember:
    If MC < AC (AVC), then AC (AVC) will drop.
    If MC > AC (AVC), then AC (AVC) will rise.
    If MC = AC (AVC), then AC (AVC) is at a minimum

    Fig.5 ATC, AVC and MC curves

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